Question
* The capital expenditures budget shows that ABC Company must purchase $100,000 of equipment on January 1 to establish the new center. The equipment supplier
* The capital expenditures budget shows that ABC Company must purchase $100,000 of equipment on January 1 to establish the new center. The equipment supplier allows a thirty-day trial period. ABC Company will pay for the equipment on January 31. The equipment is expected to have a 10-year useful life and a $10,000 salvage value. Prepare a selling and administrative expense budget.
h. Sales commissions and utilities are paid in the month after the month in which they are incurred. All other expenses are paid in the month they are incurred. Prepare a schedule of cash payments for selling and administrative expenses.
i. Use the information developed in requirements g and h to determine the amount of sales commissions payable, utilities payable, and accumulated depreciation on the March 31 pro forma balance sheet and the amount of selling and administrative expense on the first quarter pro forma income statement.
j. Using a line of credit, ABC Company borrows and repays principal in increments of $1,000 on the last day of the month as needed. It pays interest of 1 percent per month in cash on the last day of the month. Company policy is to maintain an ending cash balance of at least $12,000. Use this information and the schedules prepared in requirements b, e, and h to prepare a cash budget.
k. Use the information developed in requirement j to determine the cash flows from operating, investing, and financing activities on the first quarter pro forma statement of cash flows, the interest expense on the first quarter pro forma income statement and the amount of the ending cash balance and the line of credit liability on the March 31 pro forma balance sheet.
l. Complete the first quarter pro forma income statement.
m. Complete the March 31 pro forma balance sheet.
n. Complete the first quarter pro forma statement of cash flows.
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